Mitigating Carbon Leakage: Combining Output-Based Rebating with a Consumption Tax

Christoph Böhringer, Knut Einar Rosendahl and Halvor Briseid Storrøsten

No 5459, CESifo Working Paper Series from CESifo

Abstract: Unilateral climate policy induces carbon leakage through the relocation of emission-intensive and trade-exposed industries to regions with no or more lenient emission regulation. Both analytical and numerical studies suggest that emission pricing combined with border carbon adjustments may be a second-best instrument, and more cost-effective than output-based rebating, in which case domestic output is indirectly subsidized. No countries have so far imposed border carbon adjustments, while variants of output-based rebating have been implemented. In this paper we demonstrate that it is welfare improving for a region who has already implemented emission pricing along with output-based rebating for emission-intensive and trade-exposed goods to also introduce a consumption tax on these goods. Moreover, we show that combining output-based rebating with a consumption tax can be equivalent with border carbon adjustments.

Keywords: carbon leakage; output-based rebating; border carbon adjustments; consumption tax (search for similar items in EconPapers)
JEL-codes: D61 H20 Q54 (search for similar items in EconPapers)
Date: 2015
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Working Paper: Mitigating carbon leakage: Combining output-based rebating with a consumption tax (2015)
Working Paper: Mitigating carbon leakage: Combining output-based rebating with a consumption tax (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_5459

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